NLNG’s $12bn Expansion Deal Under Threat

CASH concerns and uncertainties in the Niger Delta, Nigeria’s main honey comb, are currently threatening a huge investment deal at the Nigeria Liquefied Natural Gas (NLNG) Limited.

By Akanimo Sampson

CASH concerns and uncertainties in the Niger Delta, Nigeria’s main honey comb, are currently threatening a huge investment deal at the Nigeria Liquefied Natural Gas (NLNG) Limited. NLNG shareholders have been foot-dragging on a Final Investment Decision (FID) on some $12 billion package that is expected to push up the capacity of the liquefied natural gas giant by 40 percent.

With six trains currently operational, the entire NLNG complex in Bonny Island, Rivers State, is capable of producing 22 Million Tonnes Per Annum (MTPA) of LNG, and five MTPA of Natural Gas Liquids (NGLs) and Condensate from 3.5 Billion (standard) cubic feet per day (Bcf/d) of natural gas intake.

Insiders say plans for building Train 7 will lift the total production capacity to 30 MTPA of LNG. The investment decision which is expected to flower before the end of the year, is currently progressing with some preliminary early site preparation work initiated. Further work awaits a FID by the shareholders.

NLNG has long term Gas Supply Agreements (GSAs) with three Joint Ventures (JVs) for the supply of natural gas (feedgas) to the plant. These JVs are Shell Petroleum Development Company of Nigeria Limited (SPDC), Total Exploration Production Nigeria (TEPNG) and Nigerian Agip Oil Company Limited (NAOC). The agreements ensure efficient gas supply to the plant throughout the life of the projects.

Feedgas is produced by the JVs from various concession areas in the Niger Delta, from onshore and offshore fields and supplied to NLNG.

The plant has rapidly and successfully made the transition from a construction project to a stable production operation with relentless focus on operational excellence, de-bottlenecking and regular Turn-Around Maintenance (TAM) of the assets whilst imbibing proven techniques and processes to maximise production, and manage human interferences and impacts.

All these activities are underpinned by a Health, Safety, Security and Environment (HSSE) culture that continually seeks improvements in the safety and sustainable utilisation of their assets. Additional projects are in development to extend and rejuvenate the assets beyond their original design life.

The plant performance is regularly benchmarked internationally with other LNG plants around the world and continues to rank amongst the biggest and top performers.

Within a short span of time, NLNG has grown in status to become a very reliable supplier of LNG in the Atlantic Basin, serving the European, North American and Far East markets. The Plant is built on 2.27 of largely reclaimed land in Finima, Bonny Island.

NLNG’s shareholders:Shell, Total, Eni SpA and Nigerian National Petroleum Corporation (NNPC) are said to be weighing the benefits of expanding their portfolio against the threat of higher taxes, pipeline vandalism in the Niger Delta and volatile gas prices.

Those concerns are delaying the deal which was first mooted in 2012. Any further interruptions will increase the risk that Africa’s biggest oil producer misses the global transition to cleaner fuels and a chance to reduce its stuttering economy’s reliance on crude.

In 2017, Nigeria shipped 46 million cubic meters of LNG, making her the world’s fourth-biggest exporter behind Qatar, Australia and Malaysia, according to data compiled by Bloomberg. She is also facing an increasing competition from the U.S., Russia and Mozambique in an LNG market where demand is set to double to about 1.28 billion cubic meters by 2030, according to Sanford C. Bernstein & Co.

Boosting capacity at Bonny Island will require investment of about $12 billion, according to New York-based Teneo Intelligence. That will fund the construction of two new processing units, known as trains.

Nigeria has no shortage of gas. Its almost 5.7 trillion cubic meters of proven reserves are the biggest in Africa, but supply to NLNG can be erratic.

Flows were reduced by 10 percent at one point last year amid shutdowns at oil and gas fields in the volatile oil region as thieves tapped into pipelines. Shell said this week that attacks, ranging from piracy and theft to vandalism and kidnapping, continue to put a brake on output.

There are also fiscal concerns, with some Nigerian politicians wanting to remove tax breaks enjoyed by the venture. President Muhammadu Buhari’s government is against such a move, which NLNG says would kill off its expansion plans.

Nigeria’s 49 percent stake in the venture has proved lucrative, earning the government $16 billion of dividends from 2004 to 2016, according to NLNG. Buhari used those payouts to bail out several states in 2015, after the oil-price crash battered the economy, and this month it transferred $650 million of NLNG proceeds to its sovereign wealth fund for infrastructure development.

To maintain that position and Nigeria’s clout among global energy giants, the new trains must be built, NLNG Managing Director Tony Attah said in February that a cleaner fossil fuel offers a better long-term option than crude, adding ‘’the energy mix is fast-changing and Nigeria has to come to terms with that. The best bet is for gas.’’